$2006 110.000 90.000 PROBLEM 8-14 Absorption and Variable Costing: Production Constant, Sales Fractal Leander Office Products Inc. produces and sells small storage and organizational products for me During the first month of operations, the products sold well, Andrea Leander, the owner of the was surprised to see a loss for the month on her income statement. This statement was prepare 2 Was the accountant correct in suggesting that the company really carned a "profit for the 3. During the second month of operations, the company again produced 50,000 units hur so LO3L041 local bookkeeping service recommended to her by her bank manager. The statement followers LEANDER OFFICE PRODUCTS INC. Income Statement Sales (40,000 units). Variable expenses: Variable cost of goods sold $80,000 Variable selling and administrative expenses 30,000 Contribution margin Fixed expenses: Fixed manufacturing overhead 75.000 Fixed selling and administrative expenses 20,000 95.000 Operating loss.. $ 5.000 *Consists of direct materials, direct labour, and variable manufacturing overhead. Leander is discouraged over the loss shown for the month, particularly since she had planned the statement to encourage investors to purchase shares in the new company. A friend who is an account insists that the company should be using absorption costing rather than variable costing. He argues tut absorption costing had been used, the company would probably have reported a profit for the oth Selected cost data relating to the product and to the first month of operations follows: Units produced.. 50,000 Units sold 40.000 Variable costs per unit: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative expenses Required: 1. Complete the following. a. Compute the unit product cost under absorption costing. Redo the company's income statement for the month using absorption costing. c. Reconcile the variable and absorption costing operating income (loss) figures. Explain. 60,000 units. (Assume no change in total fixed costs.) a. Prepare a contribution format income statement for the month using variable conting Prepare an income statement for the month using absorption costing. Reconcile the variable costing and absorption costing operating income figures. $1.00 SOLSO 50 20 S0.75